Indian shares fell for the second session on Wednesday, with financials under pressure, and investors stayed cautious on expectations of more monetary tightening after the central bank's aggressive rate increase on Tuesday. Equities were weak globally on a flight to safety from a possible US debt default.
The 30-share BSE index fell 0.46 percent, or 85.97 points, to 18,432.25 points, extending the previous day's 1.9 percent slide. More than half the index components dropped. The 50-share NSE index closed 0.5 percent lower at 5,546.80 points. Losers outnumbered gainers in a ratio of 1.3 to 1 on NSE, where 596 million shares were traded, higher than the 90-day daily average volume of 575 million.
The Reserve Bank of India raised interest rates on Tuesday by a higher-than-expected 50 basis points - its 11th increase since March 2010 - and showed unexpected resolve in fighting persistently high inflation despite slowing growth and uncertainty about global demand.
Expectations for rate increases for the remainder of 2011 have jumped by 50 basis points after the move, a Reuters snap poll of economists found on Tuesday. Foreign funds have invested a net of $2.8 billion in Indian equities since June 23, but data since the last week suggests wavering interest. "Investors will definitely be cautious. We don't know when it (rate hike cycle) gets over," said Vaibhav Sanghavi, director of Ambit Capital. "Inflation isn't going to come down in a hurry. It is here to stay for now." Leading lenders State Bank of India and ICICI Bank fell 1.7 percent and 1.4 percent respectively, on concerns of a slowdown in credit offtake.
Energy major Reliance Industries dropped 1.2 percent as worries over its gas output clouded the outlook, dealers said. It posted its highest ever profit on Monday, but analysts have said refining margins are peaking and the slowdown in its oil and gas business could continue. Maruti Suzuki raced 2.7 percent ahead, a day after the top carmaker beat estimates with an 18 percent rise in its fiscal first-quarter net profit.
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